I read Nicholas Taleb’s Skin in the Game while in Havana during the Winter holidays of 2020. I am familiar with his ideas because I’ve encountered them frequently in the press—many intellectuals whose work I read, like John Gray, often cite him, and his books are often reviewed in the periodicals, like the Economist, that I subscribe to. I have been meaning to read one of his books in their entirety for a while, but other commitments got in the way. I decided to finally accomplish the task while in Havana, because while I was there, I could devote the early hours of the morning to reading (while spending the rest of the day and the evenings out and about). The effort was worth it, as Skin in the Game provides a fresh and provocative perspective which goes a long way towards explaining one of the key features of the present era (and about which I have published), namely, the rise of populism.
The main concept in the book’s eponymous title, skin in the game, has a seemingly simple meaning: the value or seriousness of ideas or beliefs is directly proportionate to the risk incurred for holding or promoting them. This places a special responsibility on elites, because it is them, and not the masses, who develop, propagate, and apply new ideas. During pre-modernity, the logic of skin in the game was the norm. Taleb cites the examples of bad Roman emperors, ones who harmed the interests or the people of the empire; most were killed by the praetorian guard. The benefits of this system, says Taleb, is that it helped to filter out bad leaders and select ones who were willing to make major sacrifices for their beliefs. Another way Taleb helpfully demonstrates the idea is with doctors and pilots in the modern world. Both pay dearly for their mistakes, and this tight link between the ideas in their heads, and actual consequences in the real world, ensures that, over time, good practices flourish and spread, while harmful ideas and the people who hold them are pruned by reality.
In the modern world, many categories of people at the non-elite level—barbers, mobsters, cooks, etc.—have skin in the game in the sense described above. If they harm others, they pay a price in terms of lost income, employment, or reputation. The same cannot be said about many contemporary elites, says Taleb, particularly politicians, bankers, and journalists. Many in these categories hold and promote ideas and policies and pay no price if they are wrong or cause harm. The example Taleb cites repeatedly is those politicians and journalists who endorsed regime change policies in the Middle East, and particularly Libya in 2011. There were sound theoretical and empirical reasons for expecting this to be a disaster for Libyans, which is exactly what it turned out to be, and yet political decision-makers and their promoters in major newspapers paid no price for the harm caused by the policy they helped to actualize. In other fields, in contrast, like medicine and aviation, or among average people, being so disastrously wrong would have produced severely negative, even career destroying, consequences. Another example Taleb cites is finance. Bankers responsible for the crisis of 2007 not only did not pay a price for their mistakes; they were rewarded with tax-payer bailouts even as the consequences of their decisions were offloaded to ordinary members of society. And politicians which were decisive in providing these bailouts were subsequently rewarded by the very firms they saved.
These examples highlight how the absence of skin in the game is a major cause of corruption in the contemporary world. Many are aware of it but are afraid to speak out, and this leads us to another important observation in the book under review: the tension between ethical decision-making and worldly attachments. More prosaically, in Taleb’s words it is hard to speak out when one has a mortgage and kids; the risk of harming the interests of loved ones is simply to high, and hence salaried professionals—in major firms, academia, or media—who see the corruption at the heart of the system are silent. Taleb, of course, does not fall into this category; although he is a scholar, he is independently wealthy and hence possesses what he calls “fuck you money”, the freedom to challenge powerful interests or groups.
A number of important implications flow from these arguments. One is that it is important to pay attention, not to what people say, but to what they do and how much they are willing to risk for their ideas. Professional members of the commentariat who regularly bloviate their policy prescriptions in polished, verbose, and Ivey-League inflected English should be ignored; those who actually risk something if they are wrong have more credibility.
There are also implications for policy. In order to restore integrity, systems need to be designed so that those in power have skin in the game. Taleb might say that we need to rehabilitate the best features of the Roman model, whereby leaders who decide on war actually participate in the fighting (as Julian the Apostate did); those who cause harm to innocents would be swiftly punished. This would increase the likelihood that virtuous leaders would be selected, ones who valued cautiousness and prudence, and whose interests were aligned with those on the receiving end of their decisions.
Lastly, Taleb endorses more entrepreneurial activity so that more people can develop a level of economic independence which permits them to denounce corruption without a devastating loss of income. There is a need for a corrective mechanism when the system goes off the rails—defined by Taleb as one where powerful people do not have sufficient amount of skin in the game—and this is less likely when one cannot, at risk of being unable to pay the mortgage, criticise those in power.
It is hard to say whether these prescriptions would fix the problems that afflict modern democracy, of which the most salient symptom is the rise of populist parties, some of whom reject the system outright and want to overthrow it. Taleb is undoubtedly correct that among the most important instances of corruption in recent history were the failed humanitarian interventions and the financial crisis. There is nothing particularly original about this observation, but Taleb’s analysis adds depth by shedding light on the underlying reality of the absence of skin in the game as a major cause of these debacles and the consequent harms done to average people. Had there been skin in the game, promoters and executors of these policies would have been punished, creating a sense of justice and weakening the support for radicals who promised to bring the system crashing down. At the same time, those with leadership aspirations would think twice about their proposals and reforms in the knowledge that if they are wrong, they will pay a heavy price. Perhaps this would help to stitch together the ruptured bond between leaders and the public.
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